Credit cards, debit cards and other types of transaction cards are commonly used today by consumers to fund transactions at or with merchants. When credit cards and debit cards are used by consumers, interchange rates are routinely imposed by a bankcard association. An interchange rate is generally a percentage of a transaction amount and the percentage is set by the bankcard association. Acquiring banks are charged the interchange rate for a consumer transaction by the card association. An acquiring bank is a financial institution that contracts with merchants to settle electronic transactions. For credit card transactions, an acquiring bank provides the merchant with its credit card processing account. This acquiring bank sends credit card and purchase information for transactions to a card association (such as Visa® and MasterCard®), which forwards it to the issuer associated with the credit card. The card association also collects interchange revenue due to the interchange rate imposed for each transaction associated with the respective credit or debit card and forwards at least a portion of that revenue to the issuer. Interchange rates for credit card transactions are commonly higher than interchange rates for debit cards.
Also commonly used today in the banking industry is automated clearing house (“ACH”) transactions. ACH is a form of electronic payment. Specifically, ACH is an electronic fund transfer through an ACH network including the Federal Reserve Bank from one account to another account, such as to a checking or savings account. ACH is typically used to process payments for settlement within one or two business days. ACH transactions are settled in a manner similar to the way checks are settled: The clearinghouse takes all ACH files received daily from its member banks, sorts them by the originating bank (the bank where the check was cashed or deposited) and the paying bank (the bank against which the check was drawn), totals the accounts, and credits or debits appropriate accounts accordingly. A company can issue an ACH debit for a purchase amount through the ACH network to a customer's account at the customer's bank. A company can also initiate a purchase upon receipt of an ACH credit.
Numerous financial institutions, such as credit card companies and banks, and other companies, such as airline carriers, hotels and retailers, offer membership reward programs to their customers. Traditionally, membership reward programs are funded at least in part by the interchange revenue collected by the respective financial institution. These membership reward programs often provide their participants the ability to earn and accumulate units or portions thereof that are operable as currency, such as points, stars and miles. Participants earn such units, for example, when conducting transactions with a qualified account or engaging services with the qualified account. The units are redeemable for merchandise or services with participating merchants. Further, these membership reward programs offer other rewards to participants for being enrolled in the respective reward program that do not involve the redemption of points or the like, such as a companion airline ticket upon purchasing an airline ticket with a qualified account. Depending on the reward program enrolled in by a participant, certain rewards may not be available to the respective participant. For instance, program X may not offer particular merchandise or services to its participants, whereas program y does offer such merchandise or services. A participant may use a transaction card associated with the qualified account to conduct the respective transaction. Reward units typically accrue at a rate of one unit for every dollar spent using the account and the accrued units operate as currency. Some entities restrict purchasing to particular merchants to earn reward units, whereas other financial institutions have no such restrictions. The maximum reward units a participant can earn annually are usually unlimited. Sometimes, however, a cap is imposed on the amount of reward units a participant can earn. Additionally, reward units usually do not accumulate on cash advances, convenience checks, balance transfers, fees or adjustments. When merchandise purchased with the respective account is returned, the account credit will result in a reduction of reward units.
Participants usually seek to accumulate enough reward units to purchase merchandise or services. For instance, a participant may seek to accumulate enough reward units to purchase a particular product from an associated merchant or purchase an airline ticket from another associated merchant. Depending on the program, only certain merchants are considered qualified merchants with whom reward units can be redeemed towards a purchase.
Membership reward programs also often offer participants other rewards, incentives or the like instead of or in addition to the ability to accumulate reward units. For example, some membership reward programs return to a participant a predetermined percentage of a transaction amount or of an amount spent during a predetermined period (referred to as “cash back”) either as a credit to an account or by check, offer participants discounts on select merchandise or services, and complimentary merchandise or services.
Typically, participants earn rewards when using transaction cards associated with a credit line, such as conventional credit cards. Few debit card issuers, however, offer rewards for use of their debit cards at least in part because companies like Mastercard® and Visa® collect lower interchange revenue from merchants and consequently pay less to the respective issuers. As a result, debit card issuers do not have sufficient revenue to fund programs such as rewards programs. Moreover, consumers commonly obtain their debit cards from the same banks which provide their checking or other demand deposit account.
Therefore, a need exists for a system and method that utilizes a transaction vehicle, for instance, a transaction card with an interchange rate, associated with a destination account, the destination account being funded on a predetermined basis, such as daily, weekly or monthly, through ACH or otherwise by another account associated with the issuer of the transaction vehicle or a different financial institution. There is also a need to offer an account holder debit functionality linked to an account, such as the destination account, yet provide a predetermined delay before a transaction is funded through ACH or otherwise and a system and method for the account holder to challenge the validity of that respective transaction during the predetermined delay. Accordingly, the account holder is provided with enhanced fraud protection.